Does risk disclosure in prospectus matter in ChiNext IPOs’ initial underpricing?

  • Monica Hussein
  • Zhong-guo ZhouEmail author
  • Qi Deng
Original Research


Using a unique and hand-collected dataset, we investigate the impact of the risk factors disclosed in the prospectuses on the initial returns for ChiNext IPOs. After controlling for the market-, firm- and offer-specific characteristics, we identify several significant risk factors that include “policy changes on taxation or government subsidy”, “higher depreciation and/or amortization due to proposed capital expenditures”, “ongoing litigation or lawsuit”, and “piracy or trademark infringement”. Concerns for ongoing litigation risk seem to be most important as the risk affects both the opening and closing price returns positively and significantly, indicating risk compensation through deep underpricing. The other three risk factors only affect the closing price return. Similar to the impact from the ongoing litigation or lawsuit risk, the trademark infringement risk affects the closing price return positively. On the other hand, the risks associated with possible policy changes on taxation or government subsidy and higher depreciation and/or amortization due to proposed capital expenditures have negative impacts on the closing return. In line with our conjecture of a short-term equilibrium, none of the risk factors disclosed in the prospectuses are found significant for the 21st trading day (monthly) initial return.


IPO initial underpricing Market-, firm-, and offer-specific characteristics Risk exposures in ChiNext IPOs’ prospectuses Model specification 

JEL Classification

G12 G14 G15 



We would like to thank two anonymous referees and the editor for insightful comments and suggestions to improve the paper. All possible errors remaining are ours.


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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Department of Finance, Financial Planning, and Insurance, David Nazarian College of Business and EconomicsCalifornia State UniversityNorthridgeUSA
  2. 2.Accounting and Finance Group, International Business School SuzhouXi’an Jiaotong - Liverpool UniversitySuzhouChina

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